master.xml

<data>
  <the-pip>
    <entry>
	<published-by id="0001">
		<item>Smith</item>
	</published-by>
    </entry>
    <entry>
	<published-by id="0002">
		<item>Jones</item>
	</published-by>
    </entry>
    <entry>
        <published-by id="0003">
		<item>Jones</item>
	</published-by>
    </entry>
</the-pip>
</data>

master.xsl

<xsl:stylesheet xmlns:xsl="http://www.w3.org/1999/XSL/Transform" version="1.0">

  <xsl:output method="xml" indent="yes" />

  <xsl:key name="contacts-by-surname" match="published-by" use="item" />
  
  <xsl:template match="/">
    <ul>
    <xsl:apply-templates select="data/the-pip/entry"/>
    </ul>
  </xsl:template>
  
  <xsl:template match="data/the-pip/entry">
	<xsl:for-each select="published-by[count(. | key('contacts-by-surname', item)[1]) = 1]">
		<xsl:sort select="item" />
          <li><xsl:value-of select="item" /></li>
	</xsl:for-each>
   </xsl:template>
</xsl:stylesheet>